How Doctors Can Reach Financial Independence in Their 40’s

Physician on FIRE, Physician and Creator of PhysicianOnFire.com, joined me to talk about becoming Financially Independent & Retiring Early (FIRE). He was inspired to create his blog and help others when he realized what it took to retire early. What once seemed like a distant, long-term goal soon became his reality.

Learn about the behaviors and steps you can take today to reach an early retirement like him. One day you will realize that work is optional, and you will be able to build a life around your personal interests and passions. Obviously, medicine and helping others is a passion for most doctors, but imagine what you would do if you did not have to work anymore. Some of you would still choose to work, maybe volunteer, but the point is to get to Financial Independence. Not needing that paycheck to do all the things you love.

Physician on FIRE on becoming financially independent.

Financial independence can be reached in a reasonable amount of time, it all comes down to choices, and certain choices will help you reach your goals faster. Even if you are just starting out or are still in residency, your choices today will have a huge impact on your long-term goals, think compounding interest.

Physician on FIRE’s personal story and encouraging tips are truly an inspiration for us all.

What you will learn in this episode:

How he reached financial independence by age 41

What your magical number is and why it is important

What historical data tells us about passive investing

How to take advantage of living in different states

Is early retirement possible with high student debt

Can physicians in low paying specialties achieve FIRE at a young age

The mindset and behaviors to have if you are still in residency

Why you should focus on Financial Independence before Early Retirement

When you should take that vacation over saving or investing

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Full Transcript: How Doctors Can Reach Financial Independence in Their 40’s

Ryan

Have you ever wondered if you can retire early? Is achieving financial independence one of your primary financial goals? Well today, we’re going to be talking with a physician that has achieved financial independence in just over a decade after training.

Ryan

Hello and welcome. I am thrilled to bring you today’s guest, who is all about fire. And I’m not talking about being a pyro, I’m talking about financial independence and retiring early, also known as F.I.R.E. Pulling inspiration from Mr. Money Mustache and ‘The White Coat Investor’, which he’s the first member of the W.C.I. network. It all helped spark this discovery that he could retire sooner rather than later. In fact, he’s been in practice for a little over a decade, and he’s already achieved financial independence. That’s just remarkable.

Working on your own terms is pretty neat.

When he started out, he didn’t know what it was called, or how he’d actually get there. He realized it was achievable, and what was really important to him was this idea F.I.R.E. It would set him up to live out his vision of his ideal life. The concept of working because he wanted to, not because he had to. It allowed him to drop his schedule 40%, because money isn’t a primary concern now, and it’s allowed him to work on his own terms. Sounds pretty amazing to me, guys.

So if you haven’t figured out who I’m talking about, our guest today is the Physician and the blogger behind the site physicianonfire.com, and while he’s chosen to remain anonymous for now, hopefully not forever, he does take us behind the scenes of it, on why he chose his specialty, and what he went through … the process of elimination on what would make him happy, and it’s not only the concept of how much he’s going to have to scrub in, but what the lifestyle looks like and what the workload looks like.

I love the fact that what turned out to be a New Year’s resolution for himself, to actually start his blog, thankfully for all of us, it’s a resolution that he kept. He’s got over a million page views now, and it’s continuing to grow. He’s well into his second year of his blog, and it’s really taking off, and it’s because he writes high quality content for those interested in F.I.R.E.

Today’s show is action-packed with excellent commentary on topics like the 4% rule, and geographic arbitrage with respects to your salary, and this concept of saving 25% of your annual household spending as the baseline for achieving financial independence and able to retire early. We even kind of nerd-ed out a little bit on the sequence of returns and what that has to do with your ability to achieve financial independence, which was pretty interesting and fun.

But before we jump in the show, I’d also like to mention that I’ll be including a freebie exclusively for those in the Financial Residency Facebook Community. If you haven’t joined us yet, search for the Financial Residency Facebook community in the Facebook groups and join hundreds of physicians and physician’s spouses that are already in there today. 2018 is going to be huge for the community. I’ll be posting Q and A sessions, setting up some regular Facebook Lives, which I’ll also be doing some Q and A’s live as well. And I’ll be creating content exclusively for the community. All of this is free, so I encourage you to join all of us and let’s build a solid foundation for your financial future, starting right now.

Here is this week’s digestible tip.

Ryan

Okay, so today’s quick tip is the difference between an FSA and an HSA, and in the spirit of actually making this a quick tip, I’m not going to go into all the differences and details. But the general idea is that a FSA stands for a Flexible Spending Account. It’s an account in which you put money into to pay for certain out-of-pocket healthcare costs. You don’t pay tax on the money. You can put up to $2600 a year into it, but it has this use it or lose it type policy, with the exception of about $500, which can be carried forward year to year. There’s a list of permitted use of funds, but just be careful that you do not over-fund this type of account.

An HSA stands for a Health Spending Account. You have to have a high deductible health insurance plan to even qualify for an HSA. Some providers will have one, if not you would have to go open this up at a third party. You can put up to $3400 if you’re single or $6750 if you’re a family, and the great news is that your balance will carry forward year over year, you never have to worry about losing your savings or the money that you’ve put into there. It’s the only account that I know of that’s triple tax free, which means that the contributions that you put in are pre-tax, or tax deductible, the money grows tax free, and the money that you pull out comes out tax free as long as it’s used for qualified healthcare costs.

Welcome, Physician on Fire, to the Financial Residency podcast. I’m really excited to have you on.

PoF

I’m happy to be here. Thank-you for inviting me, it’s an honor.

Ryan

Awesome, man. I know that you go by ‘Physician on FIRE’ and we don’t talk about your real name, but can you kind of enlighten us and tell us a little bit about yourself, the man behind the blog, the man behind the doctor, and why you started everything?

This is Physician on FIRE’s personal story.

PoF

Absolutely. I am an anesthesiologist, 41-year-old father and family man. I’ve got a couple boys in grade school now, and I’ve been in practice for eleven plus years. As far as how I got here, going way back, just like, probably, many of your listeners, I was good at science, got good grades. I had family working in healthcare. My mother was a nurse and her father was a physician, and my dad and his dad were both dentists so it came pretty natural. When I was going through school, doctor seemed like a pretty good option for me and I went that way, went to medical school … the same university that I attended for undergrad, which was the University of Minnesota. Went through residency, the whole deal, now it’s been ten, eleven, twelve years almost … next year it’ll be twelve.

Ryan

You said your dad was a dentist. Why didn’t you become a dentist?

PoF

That’s a great question. I guess I wasn’t ready to narrow down what I was going to be doing quite that far as a college student. My brother also had, at least, toyed with the idea of Dentistry and maybe I thought he was going to be the dentist, so I would do something different, but I also realized that medical school would give me a lot of different options, to work on any different part of the body, do surgery or not, be in clinic or not. By going to medical school I still had dozens of different jobs open to me, whereas, when you go into dental school, you’re going to be working in the mouth in some capacity, which I ended up doing I guess, when you look at what my job is … placing breathing tubes in mouths, mouths is a big part of it, but there’s a lot of other cool stuff I do too.

Ryan

Why did you select that specialty?

PoF

Anesthesia? It seemed pretty complicated and scary to me as an early medical student, first couple of years, so I didn’t really think all that much about it. I thought I might want to be a radiologist … Well, actually, maybe before that a pediatrician, and then I realized I didn’t love clinic after I tried doing a fair amount of clinic, and then I thought maybe radiology because I really liked the technology and some of the cool stuff they get to see and do. Interventional is pretty cool too, but I realized I didn’t love being in a dark room in the basement like radiologists are … more or less pushed down there in the corner of the hospital.

Being a physician is a fruitful career path.

And I don’t love being scrubbed in a lot, which we all know, Interventional Radiology and surgery, for the most part … I don’t want to say it was a process of elimination, necessarily, but once I realized I didn’t want to do this, that or the other, and then I decided to enroll in an anesthesia elective, I really did enjoy it and I realized that the anesthesia machine is actually a fairly simple tool, once you understand how it works. And I liked the flow of the day, you do a lot of different things and the anesthesiologists that I talked to were all pretty happy with what they were doing.

Of course, it is one of the R.O.A.D., that’s the acronym; Radiology, Anesthesia … whoops, I skipped Ophthalmology, and Dermatology. And those are known to have pretty good pay, and it can be a good lifestyle. At least if you find the right job, so yeah, it ended up being a good choice for me and I’m glad that I chose it.

Ryan

That’s awesome that you found something that you love that much and speaking of the pay, as my wife is Peds Pulm, I can tell you that you probably make a lot more as an anesthesiologist than you would in Pediatrics, so probably a good choice. I know doctors don’t get into medicine to become wealthy and in it for the money, but that’s always a consideration.

PoF

Right. It shouldn’t be a primary reason, but you have to make some money. Student loans and everything else, the late start that we get in life. You don’t want to totally ignore it.

Ryan

Would you mind … did you have student loans coming out?

Ignoring money can get you into a heap of trouble.

PoF

I did, but not nearly as much as even some of my colleagues and certainly people coming out now eleven or twelve years later, but I think my totals were in the $60,000 range, but I had a full tuition scholarship for undergrad at the state flagship university, and I stayed there for medical school and I had some scholarships even for that. And back then, I think our tuition started at under ten grand a year for medical school, and I did have some family help. My grandfather was a physician. He passed away when I was maybe five years old, and he set up a little bit of money for college for his three grandkids. So I was able to finish undergrad tuition free and room and board was covered by other scholarships, and a little bit of the fund that he set up. So I actually had money … I was in the black going into medical school.

I was able to continue living like a college student, just lived in junky apartments close to campus, walked to classes, and biked and had roommates and all that, so I didn’t really accrue too much in the way, but 60 grand. And I carried that for I think until about four … three, four years … four, five years ago, probably, now, that I just decided I was done with it and I had enough money to easily just write a check.

Ryan

That’s totally different than the majority of your peers out there that come out with two, three, four, $500,000 in debt.

PoF

Yeah it’s incredible, just the rate of tuition rise over … well it’s been fifteen years since I finished medical school, but it’s gotten to be really difficult. So, like I said, you shouldn’t go into medicine to get rich because it takes a very long time, even to start to make a good salary, but ignoring money puts you into trouble, too.

Ryan

And do you think … because we’re going to jump here in just a minute into your early retirement and financial independence. Do you think that not having a ton of student debt and the little assistance from your grandfather, and obviously all the hard work and scholarships you achieved … do you think that plays into how you’re able to achieve F.I.R.E. so early?

PoF

Yeah. It’s really just math, and so having $60,000 in student loans instead of $260,000, well that’s $200,000 less that I had to pay back. $200,000 is about the amount that I invest and save every year now, but I’ve taken care of all my debts and everything else, so really I would say yeah, maybe that added a year or two if you look at the interest on those loans and everything. So yeah, it probably saved me a year or two but it doesn’t mean that what I have accomplished can’t be reproduced, it just means it’ll take a little more time, that’s all.

Ryan

That’s a great answer, that it didn’t prohibit you from doing this, and obviously it helped you, but it wouldn’t prohibit someone else to achieving what your goals are, and if that is their similar goal, of retiring early, or achieving financial independence, that just because you have student debt doesn’t mean that you are, for lack of a better word, screwed. It just may mean that you’re a year or two behind, so we kind of skipped the reason why you started physicianonfire.com, which is where your thoughts and your blog and everything are held these days, so can you just talk a little bit about why you started that? And then maybe we transition into your goals of early retirement and what you’re doing there?

Build a rich library of knowledge from credible online resources.

PoF

Yeah. I never really had any intentions of retiring early, at least not early in my 40’s like it looks like is going to happen for me now. I was just doing my job and trying to make money, trying to save money, like I said, I retired those debts. I even got rid of the mortgage, and it wasn’t until about two and half years ago that I was reading a random money … I think MSN site, and found this article about Mr. Money Mustache, who is a blogger that retired at age 30 from an engineering career. And he talks all about how much money you need to live a good life, how much it takes to be able to retire early, what percentage or what multiple of your annual spending you need, and all of that.

We can talk more about what the specifics are later, but I found his message to be really interesting and encouraging and from that site, I also found ‘The White Coat Investor’ and learned a little more about investing. I had read some other sites like Bogelheads and I was already doing everything myself, but reading his site solidified some of my knowledge, and when I really looked at the numbers and I looked at where we were financially, I was flabbergasted to realize that we could retire any time we wanted and I thought that was a really amazing discovery and it’s not necessarily something I’d planned for.

I had been saving, but I didn’t necessarily know what for, and then once I realized that work was optional … I wasn’t ready to turn in my 90 days-notice or anything, but I thought, “This is probably a story worth sharing.” And then I thought, “Well, why don’t I do what these guys did? Mr. Money Mustache, ‘The White Coat Investor’.” They’re assuring their story, once or twice a week putting out these articles, helping people, and forming these communities. And I thought I would take a stab at it, so I published my first blog post January of 2016. I made it a New Year’s resolution to actually start this idea that had formed in my mind and it grew steadily and here we are fall of 2017 and within a couple of hours now … and I’ve been watching the stats today, but I’ll have a million page views for the year as of probably three or four this afternoon. So it’s caught on.

It all kicked off with a New Year’s Resolution!

Ryan

Yeah, it definitely has, and I love your writing. I admit to reading your site. I actually thoroughly enjoy the way you write and it’s interesting because physicians, they might not necessarily have the best writing style, but yours is quite different and you have a lot of humor in your writing. I try to write on finance and sometimes it’s really dry, sometimes it’s fun and I try to make it fun. You definitely make it fun, and so I encourage our listeners to head over to physicianonfire.com and check out some of his writing. It’s really great stuff. I thoroughly enjoy it.

PoF

Well, thanks for the plug, Ryan. I mean, I know this is pretty dry material, a lot of it is, although I do get into happiness and wellness and living a good life, having a good time. But yeah if you’re just talking about 401K’s and withdrawal rates, and you don’t have a little fun with it, it’s not going to bring people back, so I kind of picked that up reading Mr. Money Mustache. He’s really good at grabbing you and getting your attention and having some humor injected into what otherwise is potentially a boring topic.

Ryan

Yeah he has a different target market though. You’re really targeting your peers and he’s not just targeting engineers, he’s targeting everyone that wants to have extreme frugality, basically, and hit early retirement or financial independence.

PoF

I’m kind of like MMM lite for the high income professional. And we don’t necessarily have to do all the things that he and his family have done or as some of the people who follow his blog write about doing. But I will say that having read all of his stuff and actually met him in person, that he’s not necessarily about extreme frugality. There’s a guy named Jacob from Early Retirement Extreme who definitely is. He spends $7000 a year, and I think now he’s married, and as a couple anyway, they’re spending $14,000 a year. That’s pretty extreme and they’re in the bay area of all places.

Spend the least amount of money rather than court extreme frugality.

Ryan

Doing what?

PoF

So, Mr. Money Mustache last year, I believe, spent $30,000. He publishes an annual report. And I looked at what we’re doing, and we’re on track to be about double that and that’s what we were last year, $62,000 in spending. But if you take away one of our kids, because he only has one, and you take away our international travel because he doesn’t really go a lot of places. I think he spent time in Canada with his brother last year, but … and then the fact that we have a second home a couple states away and all the driving we do back and forth from that place, we would be pretty close, and certainly I don’t think we have any level of extreme frugality. And having seen his home and the way he lives and reading his stuff, they’re not extreme in any ways. They’re just not extravagant in any way either.

His point isn’t necessarily to spend the least amount of money. What he’s really trying to do is telling you you should bike there because it’s better for you. It’s what he’s trying to promote; healthy living, and he also wants what’s healthy for the environment. He’s said in different places that his blog is an environmental/healthy living blog disguised as a finance site.

Ryan

Interesting, okay.

PoF

Yeah, kind of a different take on that, but my readers are making six figures, and you can also even spend six figures if you’re making double that, and you can reach financial independence in a very reasonable amount of time if you’re saving five, 10%, 15% of your income, you’re going to be working a full career. And that’s fine too, if that’s what you want to do. It’s all about choices and I just try to help people realize that if you make certain choices, you’re going to hit this financial independence number, which is a number that means work is optional because your investments should, or will, based on tons and tons of academic research … will give you enough money to live your life, essentially off the returns from your investments. And that’s based … Is this a good time to go into the math?

This is the 4% rule.

Ryan

Absolutely.

PoF

Like the 4% rule?

Ryan

Sure.

PoF

Yeah, so looking at historical returns, looking at basically worst case scenarios, if you look at what’s happened over the last hundred plus years, or if you take just a random sampling and do what they call a Monte Carlo simulation, you can see … What is the most you could take out every year indefinitely? Or some of the studies looked at a 30-year timeline. But if you make a 30 years, you’re probably going to make it indefinitely, and it turns out that about 4% is as high as you can go and still not run out of money or have a very low chance of running out of money over the course of that 30 plus year retirement timeline.

And there are years, where if you would have taken out 8% per year, and then that’s adjusted with inflation, so you take out a little more each year, you’d be fine, but that’s because you had a pretty good sequence of returns … had nice returns early on, which really boosted your retirement … your nest egg value, but if you retired in the beginning of a huge inflationary period, or right before the dot-com crash, or the 28, 29 downfall, well then you saw your money fall, but if you only drew with the 4%, you’d still end up okay.

25 times what you spend in a year, that is the equivalent of spending only 4% of your money per year, and that is the mantic F.I. number to be conservative. Some people like 30 and 33 and that’s kind of where I’m at, but if you just wanted a number to shoot for, figure out what you spend in a year, multiply that by 25, and that’s your F.I. target.

What effect does the sequence of returns make on you reaching your financial goals?

Ryan

Perfect. And you mentioned a couple things … a sequence of returns. And how much, in your own situation, do you believe that the sequence of returns really helps you achieve your goal of financial independence versus maybe starting at a different point. Obviously we can’t go back and shift ages and times, but if someone was to start, let’s say, now, where the market’s $22,000 versus maybe when you started the market was at $8000. I’m just talking about the Dow, I know we don’t really do that, but I’m trying to give some point of reference.

PoF

Yeah. No, that’s a great question and it also almost makes a great point if it’s a rhetorical question, which in a way it is because I finished residency in June of 2006 and at that time, the market was doing well. It did well for the first year, but then it took a nose dive over the next fifteen months, and bottomed out in 2009, but I was pretty much oblivious because at that time I didn’t plan on retiring early. I was in this for the long haul, so I just kept shoveling money in, investing, maxing out what, at the time was a SEP-IRA because I was an independent contractor doing nothing but locums for the first two years, and then I was still an independent contractor when I took my first ‘permanent’ job.

But by putting money in as the market went down, at the bottom and on the way back up, I ended up really getting a nice boost from that drop. That’s actually a good thing when you’re earning money to see it fall … as long as it comes back, which it has several times over. So I think the timing really worked out well for me, and that’s just purely luck. Now when we talk about sequence of returns, that just means what’s returned year over year. If I were to retire today, and let’s say we have a repeat of 2000 or 2009 and the stock market loses half its value, now it’s probably unlikely that we’re going to see a third event like that when we’ve only seen three in a hundred years. Two of them in the last fifteen, 20 years.

Make sure the moves you make today don’t damage your portfolio.

Maybe it’s not likely, but it would be somewhat damaging to my portfolio, and there are things you can do, of course, to mitigate the risk. Having a lower stock percentage in your allocation is one way, but by doing that, you’re also running the risk of lower long term returns so you have to weigh your investment horizon and how many years you have left on this earth when you think about making a switch like that. But that’s really why we have the 4% rule and not the 6% or 8% rule is because you could see a big downturn like that early on. And if you make it through the first five or ten years without that, then you probably will be okay withdrawing a higher percentage of your initial portfolio.

We’re going to see what happens. I don’t know exactly when I’ll retire. I am dropping my schedule by 40%. I’ll be working a .6 FTE position starting next month, and I’m pretty excited about that.

Ryan

Congratulations.

PoF

Thank-you. And that’s just one thing that being financially independent allows me to do. Money is not a primary concern right now and I’d like to reclaim some time.

Ryan

And you know what’s interesting? Is a different way of looking at that last little bit that you talked about, about lowering your full-time employment, is that you kind of are hedging your early retirement exit and what the market and the sequence of returns might be doing. Because you’re not just cutting cold turkey and saying, “Okay, now it’s really time to live off the investments.” If we do have a big correction, even if it’s not 50. 30, 40, whatever if might be, you’re still working. Money’s still coming in that you can technically live off without liquidating investments, and in theory, you’re actually hedging … which is not a bad call if you’re trying to hit this early retirement, or financial independence, however you want to phrase it … or combined … which is an interesting strategy. Is that what you intended to do?

The financial independence mindset begins from a personal desire to achieve it.

PoF

I didn’t have a grand plan. Like I said, I kind of stumbled into this. I didn’t know what financial independence was until I read about it a couple … two and a half years ago, and then I crunched the numbers and said, “Oh, I have this. This is awesome. Okay.”, and, “What do I do about it?” And it wasn’t until a couple years later that I said, “Well maybe I should start enjoying some of the fruits of my labor and doing some of the things that I talk about and write about.” Telling everyone else that they can live the life they want to live. Well shoot, why don’t I start taking less call and taking advantage of this. So I had a conversation with my colleagues, and it went well and they decided to pick up the slack a little bit … work a little bit more and I’m going to work a little bit less and we’ll see how it goes.

And then I’m also in the same way, hedging with this website, which is starting to earn a little bit of money, and if you can just replace a portion of your spending with a ‘side hustle’; something that you do on the side to earn a little bit of money in early retirement or in regular retirement. And then you don’t need as much money, so you can do the math on that one too, let’s say you want to use the 4% rule, so you need 25 times whatever. And say you want to retire, but you only have 20 times your normal spending, well then you just need to make up for that extra.

So you take your … Let’s say you spend $100,000 a year, you’re short $20,000 a year because you’ve only saved 20 times and not 25 times. Well then you just need to earn $20,000 a year doing something. And that might be a few weeks of locums a year, that might be writing, podcasting, blogging … talking about things right in this little narrow niche, but it might be [inaudible 00:27:00] thing you do. It might be just working at REI or being a ski instructor, or a tour guide on a river in a kayak or something, so there are lots of ways to hedge that bet.

Money is just a tool to get you from point A to point B.

Ryan

Really what you’re saying is whatever you enjoy at that point doing. And getting to the point of what you enjoy, and I always talk over at Physician Wealth with my clients is, finding out your ‘why’. What is your true ‘why’? Why do you want to do something? Money is just a tool to get you from point A to point B. Obviously money’s important so you can do things you enjoy, but what are those things that you enjoy. And when people … and I read about it a lot, of this F.I.R.E. Financial Independence Retire Early. They seem to me, a lot of them, give up a lot of living their great life and living in the now versus balancing … it’s a balancing act between frugality and living. So how did you go about this? Were you always someone that spent within their means and didn’t get the ‘ooh shiny object’ syndrome?

PoF

Yeah. I think you nailed it. I have never been a big spender. I’m someone who gets a lift out of finding a good bargain and getting a good deal and luxury just doesn’t appeal to me. Even … we get a CME allowance, and it’s generous, and last year I went to Hawaii and stayed at a four or five star hotel on the beach and it was really nice, but I almost feel uncomfortable when someone wants to park my car for me and grab my bags. I’m like, “Oh, no. I got it. Cool, I can do this.” And I’m just as comfortable at the three star hotel that costs half as much. Same thing with restaurants and whatnot. I’ve dined at $100 a plate, $200 a plate restaurants and yeah, I can take it or leave it and be just as happy at a much more modest place. Yeah I’m not a big spender. I’ve found that it’s not difficult for me to save a significant portion of my anesthesiologist income. It’s natural.

Ryan

Yeah, and I kind of wanted you to bring that out because when you said, “Look. Two and a half years ago, I stumbled on this idea and here I am, pretty much almost able to do it.” That is extremely rare and that’s a lot of hard work. And that is something that you were already doing and then just found out what it was called is almost the way I’m looking at it because for some people … some physicians, this isn’t normal, right? Spending $5000, $6000 a month that, honestly, for even some of my clients is their student loan payment. And then they … Necessarily, if they live in the Bay area or if they live in L.A. or if they live in New York, some of these extremely high cost living areas, their rent is $3000.

Geographic arbitrage is real.

PoF

Oh yeah, it’s crazy. And you bring up something that I’ve taken advantage of, and not necessarily on purpose, or for this reason, but I call it ‘geographic arbitrage’ or ‘geographical arbitrage’ where you … In medicine, and its kind of unique with us, but the places that are maybe considered less desirable by some … by that I mean rural and middle of the country, tend to pay more, whereas in law, finance, a lot of other high income specialties, the high paying jobs are in the big cities. They’re in New York, L.A., San Francisco, Boston, et cetera.

You can take advantage of that if you’re willing and interested in living in a place that not everyone wants to be. I happen to be from Minnesota, so that makes it pretty easy for me, and my wife is from the upper mid-west too, and so we’ve lived and I’ve worked in both of our home states. And if you look at the salary heat maps, and just look at the average pay in some of the different surveys; MGMA, AMGA. And they’ll show you that places like the mid-west, maybe the rural south, they are jobs that pay more than you’ll find in the big population centers on the coasts.

Ryan

This is almost a very easy explanation of supply and demand. There’s a lot of demand for jobs in the mid-west … or there’s not a lot of demand, excuse me, of jobs in the mid-west, so they have to pay more to attract the supply, which would be the doctors, to come out there, whereas San Diego … there’s not a very high demand for doctors because there’s so many doctors that want to live in San Diego, that they can afford to pay less because there’s just simply more of you wanting to live there and hang out at the beach.

PoF

And you know what? Little secret here. If you earn, let’s say, $100,000 more per year when you live in Minnesota, you can fly to San Diego, and New York, and Miami once a month and still come out way, way ahead. So it’s all about just realizing that there are different ways to take advantage of those in different prices and different markets.

There are different ways to take advantage of prices and different markets.

Ryan

Absolutely and you can get even more in the weeds and go, “What states don’t have state tax that I save 8%, 9%, 10% or more?”

PoF

Yep and I’m in one of the highest income tax states, of course. Minnesota’s almost 10% for the … I think it’s above $250,000 for a married couple. Anyway, but we’re happy to pay it. I’m happy where I’m at. And in some ways you get what you pay for too, and I found that out working in a place that didn’t have state income tax. They also didn’t have the same services or level of government support.

Ryan

Good point to make there.

And now, it’s time for the Curbside Consult.

Ryan

The first question I have is, there’s a physician and their spouse is a working spouse but in a much lower paying field. They have kids and they’re early in their career. Is early retirement possible with the cost of child care and large student debt? Is that possible for them to achieve early retirement?

PoF

Yeah. I’ll start by … I think we should separate financial independence and early retirement because not every physician, especially a physician that’s starting out in their career, is going to want to retire early, or think that they’ll ever want to do that, right? We’re usually pretty enthusiastic and there’s a reason we went into medicine. I think we should aim for financial independence, which just gives you a lot of options. And one of those options is to retire early, but there are other options like working less, like I’m going to do, or you could do more mission work, or you could take a job that’s lower paying where maybe you’re teaching two or three days a week and not doing clinical work, but money doesn’t matter.

So that aside, can it happen? Sure. It’s just a function of the numbers, so in this case, you’ve got a working spouse and kids. I did it with a spouse who did not hold down a full-time job, but stayed home with our kids. And hopefully they … the spouse that’s working is at least making enough money to cover the cost of child care, and if not then I think you might want to re-evaluate why that spouse is working because if you’re not even making enough to cover the cost of caring for your kids that are in daycare, well maybe staying home is a good option. I know it was for us. And of course, student loan debt we kind of covered that earlier. For every $100,000 you have that’s another year or two, or maybe six months if you’re in a high paying specialty … that you’ll be delayed in your quest for financial independence or early retirement.

It certainly can be done, if you start from the point of having nothing, which for some will take three or five years or more. But if you can get to a net worth of zero, and live on half of your take-home pay, then the math works out if you have normal-ish, even slightly below average returns. You’ll end up having enough money to call yourself financially independent with 25 years’ worth of expenses saved up in about fifteen years. So if it takes you five years to pay off your loans and you can live on half of what you take home, and most physicians or physician’s families should be taking home at least $150,000 after taxes.

It’s possible to live a nice life even living on a significantly lower portion of your income.

If you can live on $75,000, and again that’s after student loans are gone, in fifteen years. Now if you’re making, let’s say you’re taking home $300,000 after taxes, you can live on $150,000, which is a pretty nice life, in most places anyway, then you still can reach that magic number within about fifteen years. If we have lower returns, maybe 20. I’d say by age 55 it should be possible if you are willing to save a significant portion of your income.

Ryan

Great answer, and I love dropping the math. I’m a money nerd, so of course I liked that, but it was very easy to understand and great points that you made and one thing I want to jump in and say is that for the majority of my clients, when we talk about our goals and what they want to do, it isn’t about early retirement. It’s more about the financial independence to do what they want, to go … Some of them want to literally change careers. They say, “After 20 years I’ll have my fair share of medicine. It’ll be awesome and fun.” But then they want to go work in something else. And some of them are, “I want to be the guy at 70 that has three shifts, and I work the prime shifts, and I just get to see patients still and hang out.” But it’s that financial independence, so by talking about early retirement you can’t use them interchangeably and that was a great point to make.

PoF

Thanks. I think by focusing more on the early retirement, that narrows the focus and maybe turns a lot of people off, and so I do try to highlight the benefits of achieving financial independence, regardless of whether or not you think you might want to retire early. To be honest, like I said, I didn’t think about it as something I would want to do until I knew it was an option and then I really thought about looking at what we could do as a family while the kids are still young … with big travels and with this part-time schedule, we’re going to try to have the best of both worlds.

I’ll squeeze most of my shifts into a short period of time, let’s say seven to ten days in the month and then I’ll be off for a few weeks at a time, so we’re going to take the four of us to … on a family Spanish immersion experience and go to school every day and learn Spanish from people who speak it in their native language. That’s something we’re doing in November, I’m going part-time in October. So we’re taking advantage of those options right off the bat.

Figure out your why and what you want to accomplish – that’s the first half of the battle.

Ryan

That’s amazing. I love it. I love when people figure out their ‘why’ and what they want to accomplish and then they go off and do it. It’s amazing, so great job and congratulations there. I’ve got two more questions for you, so can physicians in low paying specialties … and I’ll just use my wife as an example, like Peds Pulm, can they achieve F.I.R.E at a young age like yourself?

PoF

I think I somewhat answered part of this already in the last question, but I would also point out that while it’s certainly true that on average, some specialties pay less than others, that there’s a pretty wide range with any specialty of salaries. Now if you’re purely academics, then you’re … yeah, you’re going to be looking at lower paying jobs typically. Not exclusively. Again, if you look at geographic arbitrage, you look at different private practice models, owning a practice, et cetera. Someone who works in a specialty that the average pay is low might be making double the average. So don’t assume that you’re locked into a low paying job, just because it’s a ‘low paying specialty’. Then it just comes down to the math again. If you’re making $180,000 a year in a place with a high cost of living and have a half million in student loans, you’re going to have to change at least one, if not several of the variables in that situation or you’re just not going to be able to live the life you want to live and retire early.

For lower paying specialties, you’ll have to change at least, if not several, variables.

You’ve got to do one or the other, or like I said, change a variable by increasing your income, or finding a place that you can be happy with a lower cost of living, et cetera. They’re all choices and some of those are made for us … family concerns, that certainly played a huge role in where we wanted to live. Some people don’t want to shovel snow, and I can’t blame them. It’s just a matter of deciding what’s most important to you, and if financial independence isn’t one of those things, then you can be happy in the places that we talked about that cost a lot of money, but there’s a reason they cost a lot of money. People want to be there.

Ryan

Absolutely. Another great answer, and I know you did touch on it in the first one, but I think there’s some really good points that you made that I really wanted to emphasize, and so thank-you again for sharing that one. My last question for you is kind of more general if you will, but what’s your top or maybe your top two recommendations to those still in residency that haven’t finished, concerning their finances, and this doesn’t necessarily have to mean F.I.R.E. This just means what are your top one or two things that you would recommend to them for success?

PoF

Sure. When I was a resident, I didn’t save much money. I did have an IRA, a traditional IRA, and I think I put maybe $2000 a year into that, but I also took out a $7000 loan, so that pretty much canceled out any savings I was doing, or maybe that’s where the money came from if you want to look at it that way. As far as my recommendations, I would say that just know that it gets a lot easier and so it’s important to try to save a little bit of money if you can … if you’re in a position to do so, just to have that habit, that mindset that you want to put a few thousand into let’s say, a Roth IRA. And Roth is actually a pretty good option when you’re making a low income because you’re not going to defer a whole lot of tax by taking a traditional 401K or IRA tax deduction for your contribution.

So yeah if you’re going to invest, and I think you should do at least a little bit if Roth is available to you, do that. But on the other hand, I wouldn’t stress too much over investing for the long haul because you’re only going to be doing this residency for a short period of time. It’s awfully difficult to get through. The hours are quite long and arduous, so take that vacation. If it comes down to, “We can either put an additional $2500 into our 401K.”, 403B … whatever it is, “Or, we can take that trip back home to see our family or we can go to that island that we just want to go lay on the beach and forget about the world for a while.” I think you should do that.

There are ways to do that without blowing the budget. Look up ‘travel hacking’ and that could be a whole different conversation, but you can get credit card bonuses that will give you free airline tickets and free hotel nights and all that kind of stuff, so there are ways to even have your vacations that I think are really important when you’re a hard-working resident without totally busting the bank.

You hit the real world out of residency, but don’t let that stop you from enjoying yourself.

Ryan

Yeah, that’s great. And as long as you’re not taking a credit card to have that vacation, I actually do agree with that. Life just gets a little tougher, and responsibilities and everything kind of add up right as you get out of residency and you hit … I almost want to say the real world. And so if you can, go visit family, or go take that vacation without racking up credit card debt. It probably is a good choice there, and I actually like that choice, which is against what most financial advisors would say, but just living through it and understanding what that really means … the travel during residency, if you are lucky enough to get some days off, and you’re not sleeping at the hospital, then yeah. I actually do recommend that.

PoF

Yeah you only get usually two or three weeks, I think for me it was two weeks plus a week for a conference. And so take advantage of that time and use it to get back in touch with yourself and the real world. And your point about not using credit card debt to do it is a good one, because it will add up over … especially if you’re talking about doing that in the internship year of a seven year residency or something. And then also realize, “Well shoot.” That $2000 or $3000 a year that you didn’t get into your 401K as a resident, well you’re going to be able to do that every month once you get out. You’ll make as much, usually in your first couple, three months as an attending that you did an entire year of residency, so don’t sweat too much that you didn’t max out your IRA because you’ll be able to make up for it later.

And that’s kind of what … the approach I took. By taking out, I think it was a $7000 anesthesia foundation loan, and I paid it back by doing one week of locums in between finishing residency and taking the written board exam July 7th, that Saturday, so I just went right out, made that money, paid it off, and one week gave me a whole bunch of spending money from residency. Yeah that worked well for me.

If you have any comments to share about this episode, be sure to find us on your favorite social channel!

Ryan

That’s great advice, and it’s all about perspective, right? Put it in a perspective. What’s going on? What’s coming? And just be responsible enough to not dig yourself in a hole of credit card debt. I love the recommendations that was awesome.

PoF

Thanks.

Ryan

Well, thank-you so much for being on, and Physician on Fire, you can read up on him and hear more about him. And I’m really, really excited to see how the blog takes off when you don’t have a full-time job, because right now it’s an awesome place. That’s physicianonfire.com and is there anything else you want to tell our listeners before we head out?

PoF

Thanks for listening, and like you’ve mentioned, you can find me at physicianonfire.com. I’m on Twitter, just @physicianonfire. I’m fairly active on Facebook as well with a pseudonym, but if you search physicianonfire, you’ll find the blog page on Facebook too, so lots of ways to interact with me, and I agree, I think it will be pretty nice to actually be working less because I talked about reclaiming my time, and I do put a lot of time into not only writing for the blog, but all the other ways I interact with readers in the different formats and forums, and so it will be a relief and it will be fun to maybe do some of the things I’ve been thinking about doing but just haven’t found the time to do.

Ryan

Awesome. The teaser, I love it. I love it. Well I’m excited to see what you do, and thank you so much for being on.

PoF

Thanks for having me.

Ryan

Alright everybody, I hope you enjoyed that interview with Physician on Fire. I hope that this gives you some inspiration too, to go out and find out what your ideal life looks like, and to chase after that vision. It was clear to me that Physician on Fire had this vision of his ideal life as achieving financial independence early in his career, and then being able to work part-time on his own terms. While that might not be for everybody, I really do encourage you to find out what your ideal life looks like and to go chase that dream. Next week, I’ll be interviewing a very successful resident who has built this really unique blog that caters to physicians and their finances. He’s a pretty remarkable guy, and the idea that he can fit in a profitable side gig while he’s still in training is super impressive and I think that you’ll be just as impressed as I was after hearing our show.

Also, just a quick reminder, go download the freebie for this show that’s located in the Financial Residency Facebook group. While you’re there, introduce yourself, ask a question. Be vocal, be friendly. I’ll be in there, answering those questions, hosting live video chats, as well as creating exclusive content for the community, so I encourage you to join us now and let’s take control of your household finances together.